MFCB: Strategic Re-focus Drives Positive Outlook, Target Price Raised
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates a strong positive outlook for the company, driven by its strategic pivot towards Renewable Energy (RE) and rationalization of non-core businesses. Analysts have issued a ‘BUY’ recommendation, setting a Target Price of RM0.25, representing a significant 25.0% upside from its last traded price of RM0.20.
Strategic Realignment and Cash Preservation
Management has outlined a clear strategy to scale back or exit underperforming non-core businesses to intensify its focus on RE. This realignment aims to prioritize cash preservation, strengthen RE operations, and rationalize its diversified asset portfolio. Consequently, the group anticipates its cash levels to swell to RM1bn from RM466m this year, significantly reducing net gearing to a minimal level. This strategic move is seen as a prudent step to enhance financial stability and resource allocation for future growth.
Robust Growth in Renewable Energy
The RE segment is poised for continued expansion despite some near-term operational challenges. Two turbines at the Don Sahong Hydropower plant are undergoing a USD2m overhaul each, expected to take up to three months and result in a slight decline in FY26’s Energy Availability Factor (EAF). However, this impact is expected to be offset by a slight upward adjustment in the hydro tariff, from 6 sen to 6.05 sen, and the commissioning of two new large-scale solar plants totaling 62.4 MWp by the second quarter of 2026. With the introduction of corporate tax on Don Sahong earnings at an incremental rate of 5% starting this year, the group projects an effective tax rate of 3.5-4% for FY26, signaling a favorable tax environment for its RE operations.
The company is actively exploring new RE opportunities with potential projects valued at approximately RM1bn. These include large-scale hydropower projects in Sarawak and Laos, wind projects in Cambodia, and various initiatives in Malaysia such as Battery Energy Storage Systems, Corporate Renewable Energy Supply Schemes, and pumped storage hydropower.
Addressing Non-Core Challenges and Future Outlook
Efforts to rationalize underperforming non-core businesses are underway, with options including potential exits, rollbacks of investments, or spin-offs. This strategic divestment targets assets like Edenor’s oleochemicals, Cambodian coconut plantations, and greenhouse farming, which have faced external challenges, yielded below regional averages, or proven to be cost-ineffective. This sensible move allows the company to concentrate its resources on more defensive and core RE opportunities. Meanwhile, the construction of a 130-bed hospital in Setia Alam is on track for commercial operation by end-2029.
Despite the positive RE outlook, the company acknowledges that 2026 is likely to remain challenging for its resources and packaging segments due to currency headwinds and surging raw material and shipping costs. Capacity utilization for flexible and paper packaging lines currently stands between 60% and 80%, while the limestone business maintains an 88% capacity utilization. Capital expenditure is also projected to decrease significantly from FY25’s RM192m to RM67m, indicating a period of disciplined financial management.
